Lloyd Blankfein, CEO of Goldman Sachs, listens to a question as he testifies with fellow financial CEOs on the use of Troubled Asset Relief Program (TARP) funds before the House Financial Services Committee at the US Capitol in Washington, DC, February 11, 2009.
Goldman Sachs will pay a $550 million dollar fine to settle charges it misled investors in the subprime mortgage market. The Securities and Exchange Commission announced the deal and called it the "largest penalty ever."
Under the deal, Goldman Sachs admits its marketing materials failed to disclose important information. But while paying a record fine, Goldman did not admit or deny the fraud allegations raised by the SEC. Instead, the firm refers to the omissions in its marketing materials as a "mistake."
The SEC enforcement chief said "the settlement is a stark lesson to Wall Street firms" about engaging in deceptive practices. Out of the fine, $250 million will be returned to investors and $300 million goes to the government.
While the fine was the largest against a financial company in SEC history, the settlement amounts to less than 5 percent of Goldman's 2009 net income of $12.2 billion after payment of dividends to preferred shareholders — or a little more than two weeks of net income.
Federal prosecutors have also launched a preliminary criminal inquiry into Goldman Sachs' dealings. The settlement with the SEC does not impact that investigation.
Officials have said the allegations of fraud are complex and may be difficult to prove criminality. Goldman Sachs had long denied any wrongdoing.
The securities cost investors close to $1 billion while helping Goldman client Paulson & Co. capitalize on the housing bust, the SEC said in the charges filed on April 16. It was the most significant legal action related to the mortgage meltdown that pushed the country into recession.
No executive will be fired at Goldman but the firm has agreed to conduct a review of its business practices.
The settlement came on the same day that the Senate passed the stiffest restrictions on banks and Wall Street since the Great Depression.